Procedural fairness in lotteries assigning initial roles in a dynamic setting

We extend the study of procedural fairness in three new directions. Firstly, we focus on lotteries determining the initial roles in a two-person game. One of the roles carries a potential advantage over the other. All the experimental literature has thus far focused on lotteries determining the final payoffs of a game. Secondly, we modify procedural fairness in a dynamic—i.e. over several repetitions of a game—as well as in a static—i.e. within a single game-sense. Thirdly, we analyse whether assigning individuals a minimal chance of achieving an advantaged position is enough to make them willing to accept substantially more inequality. We find that procedural fairness matters under all of these accounts. Individuals clearly respond to the degree of fairness in assigning initial roles, appraise contexts that are dynamically fair more positively than contexts that are not, and are generally more willing to accept unequal outcomes when they are granted a minimal opportunity to acquire the advantaged position. Unexpectedly, granting full equality of opportunity does not lead to the highest efficiency.     

A Rational Explanation for the Redistribution Paradox. Theory and Empirical Evidence

The paper provides a rational explanation for the redistribution paradox, whereby low‐income individuals seeking more social security prefer a lower taxation although this might imply a reduced welfare. A simple model of tax transfer and redistribution is presented, with various agents facing two different unemployment probabilities. We investigate how the preferred tax rate changes with the probability of being unemployed. We show that, when the probability of unemployment for the less‐skilled correlates negatively with that of the highly skilled, the relationship with the tax rate is not monotonic and depends on the level of risk aversion. This theoretical framework is confirmed in an empirical investigation based on microeconomic data, and in a robustness test based on macroeconomic data.     

Trade liberalization and the wage gap: the role of vertical linkages and fixed costs

This paper studies the labor market impacts of trade liberalization, and specifically tariff reductions, with a focus on the wage gap between skilled and unskilled workers in presence of vertical linkages in the fixed costs of production. To that purpose, we develop and empirically test a monopolistic competition model with variable elasticity of substitution and labor differentiated by skill level, where skilled workers are the residual claimants of savings on imported inputs. Consistently with the model predictions, we find that a 10% reduction in tariffs implies on average a 3.8% increase in the wage gap. In addition, the same level of tariff reduction is expected to lower unskilled employment in domestic production by 3.3%, which is partially offset by an expansion of unskilled employment in the export segment of production. These results are obtained matching detailed international trade data with World Input–Output Tables and EU KLEMS data on country-sector wage by skill level on 17 OECD countries from 1996 to 2005.     

Consumers’ attitudes,trust and willingness to pay for food information

Market failure can be corrected using different regulatory approaches ranging from high to low intervention. Recently, classic regulations have been criticized as costly and economically irrational, and thus, policy makers are giving more consideration to soft regulatory techniques such as information remedies. However, despite the plethora of food information conveyed by different media there appears to be a lack of studies exploring how consumers evaluate this information and how trust towards publishers influence their choices for food information. In order to fill such a gap, this study investigates questions related to topics that are more relevant to consumers, who should disseminate trustful food information, and how communication should be conveyed and segmented. Primary data were collected both through qualitative (in‐depth interviews and focus groups) and quantitative research (web and mail surveys). Attitudes, willingness to pay (WTP) for food information and trust towards public and private sources conveying information through a new food magazine were assessed using both multivariate statistical methods and econometric analysis. The study shows that consumer attitudes towards food information topics can be summarized along three cognitive‐affective dimensions: the agro‐food system, enjoyment and wellness. Information related to health risks caused by nutritional disorders and food safety issues caused by bacteria and chemical substances is the most important for about 90% of respondents. Food information related to regulations and traditions is also considered important for more than two‐thirds of respondents, whereas information about food production and processing techniques, lifestyle and food fads are considered less important by the majority of respondents. Trust towards food information disseminated by public bodies is higher than that observed for private bodies. This behaviour directly affects WTP for food information provided by public and private publishers when markets are shocked by a food safety incident. WTP for consumer association (€1.80) and the European Food Safety Authority (€1.30) are higher than WTP for the independent and food industry publishers that cluster around zero euro. Furthermore, trust towards the type of publisher also plays a key role in food information market segmentation together with socio‐demographic and economic variables such as gender, age, presence of children and income. These findings invite policy makers to reflect on the possibility of using information remedies conveyed using trusted sources of information to specific segments of consumers as an interesting soft alternative to the classic way of regulating modern food markets. JEL codes: D12, D18, D89, Q18.     

Commercial Real Estate Returns: An Anatomy of Smoothing in Asset and Index Returns

In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal‐based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relationship between smoothing at the individual property level and the amount of persistence in the aggregate appraisal‐based index. To investigate this issue we analyze a large sample of appraisal data at the individual property level from the Investment Property Databank. We find that commonly used unsmoothing estimates at the index level overstate the extent of smoothing that takes place at the individual property level. There is also strong support for an ARFIMA representation of appraisal returns at the index level and an ARMA model at the individual property level.     

Real exchange rate persistence and monetary policy rules

The objective of this paper is to analyze the effects of alternative monetary rules on real exchange rate persistence. Using a two-country stochastic dynamic general equilibrium with nominal price stickiness and local currency pricing, we will show how the persistence of purchasing power parity deviations can be related to a monetary theory of these deviations. When monetary policy lean against the wind, there is no relationship of proportionality between the time during which prices remain sticky and the persistence of the response of the real exchange rate: in this case high nominal price rigidity is not sufficient, per se, in generating any persistence following a monetary shock. Moreover, we emphasize the role of interest rates smoothing policies and relative price stickiness within countries in understanding the relationship between the real exchange rate and monetary shocks. With reasonable parameters values, a wide range of monetary policy rules can generate real exchange rate autocorrelations around the ones observed in the data.     

Technology shocks, structural breaks and the effects on the business cycle

It is shown that time-series of US productivity and hours are apparently affected by a structural break in the late 60s. Moreover, the importance of technology shocks over the business cycle has sharply decreased after the break.     

Complex Reduced Rank Models For Seasonally Cointegrated Time Series

This paper introduces a new representation for seasonally cointegrated variables, namely the complex error correction model, which allows statistical inference to be performed by reduced rank regression. The suggested estimators and tests statistics are asymptotically equivalent to their maximum likelihood counterparts. The small sample properties are evaluated by a Monte Carlo study and an empirical example is presented to illustrate the concepts and methods.     

Studying co-movements in large multivariate data prior to multivariate modelling

For non-stationary vector autoregressive models (VAR hereafter, or VAR with moving average, VARMA hereafter), we show that the presence of common cyclical features or cointegration leads to a reduction of the order of the implied univariate autoregressive-integrated-moving average (ARIMA hereafter) models. This finding can explain why we identify parsimonious univariate ARIMA models in applied research although VAR models of typical order and dimension used in macroeconometrics imply non-parsimonious univariate ARIMA representations.